National Security vs National Treatment: The USPTO’s Ongoing China Problem

by Dennis Crouch

I was thinking more about the USPTO’s recent embrace of strict real party-in-interest (RPI) requirements for inter partes review (IPR) petitions — and particularly the explicitly stated national security justification.  Director John Squires’s October 28 memorandum names various Chinese entities who have been IPR petitioners and their designation by the Department of Commerce as being adversarial to he interests of the U.S.  Although not stated expressly in the Squires memo, the implication seems clear to me that the agency intends to scrutinize and potentially deny IPR petitions filed by Chinese companies or entities with connections to the Chinese government.  This approach, however laudable its security motivations might be, runs headlong into longstanding U.S. treaty obligations under international intellectual property law. See also, How the AIA Violates TRIPS (2012).

The Paris Convention for the Protection of Industrial Property (1883) and the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (1994) both mandate that foreign nationals receive treatment no less favorable than domestic nationals in all matters of intellectual property protection, including the procedures for challenging patents. Under TRIPS Article 3, this national treatment obligation extends explicitly to matters affecting the availability, acquisition, scope, maintenance, and enforcement of intellectual property rights.

An IPR proceeding before the USPTO is precisely such a matter. If the USPTO uses RPI disclosures to deny Chinese entities access to IPR while U.S. entities face no equivalent barrier, the differential treatment appears to violate the key national treatment principle that has been centerstage of patent rights for almost 150 years.

National Treatment in Patent Law

The national treatment principle requires that countries treat foreign patent applicants, patent owners, and patent challengers at least as favorably as they treat their own nationals. This obligation traces back to Article 2 of the Paris Convention (1883), which guarantees foreigners "the same protection and the same legal remedy" for patent rights as locals receive. The TRIPS Agreement (1994) reinforced this mandate, requiring WTO members to provide equal treatment in all aspects of intellectual property protection, including administrative procedures for challenging patents.

The statutory language of 35 U.S.C. § 312(a)(2) itself poses no treaty problem. The requirement that IPR petitioners identify all real parties-in-interest is facially neutral and applies equally to all petitioners regardless of nationality. The potential violation emerges not from the rule itself but from its discriminatory application. Director Squires’s memorandum explicitly identifies Chinese entities on the Commerce Department’s Entity List and frames the RPI requirement as a tool to prevent “foreign adversaries” from “harass[ing] American patentees.” This articulated intent to use a neutral procedural requirement as a mechanism for nationality-based gatekeeping transforms what would otherwise be a legitimate administrative requirement into something more troubling from an international law perspective.

The national security exception provides the only plausible justification for such discrimination under international law. TRIPS Article 73 contains a security exception allowing members to take actions “which it considers necessary for the protection of its essential security interests” in time of war or other emergency in international relations.

Article 73 Security Exceptions.  Nothing in this Agreement shall be construed: … (b) to prevent a Member from taking any action which it considers necessary for the protection of its essential security interests … (iii) taken in time of war or other emergency in international relations.

And, although the United States and China are not in a shooting war, recent administrations have repeatedly referred to the ongoing “economic war” between the nations.  The United States could at least theoretically invoke this provision to defend nationality-based restrictions on patent proceedings, arguing that U.S.-China tensions constitute an “emergency in international relations” and that excluding Chinese state-linked entities from IPR is necessary for national security.

The most authoritative interpretation of the TRIPS Article 73 (and its GATT analogue, Article XXI) comes from the WTO panel report in Russia – Measures Concerning Traffic in Transit (2019). There, the panel held that while the phrase “which it considers necessary” gives members significant discretion, that discretion is not unlimited. A member invoking the security exception must identify a genuine “emergency in international relations” and demonstrate a plausible connection between the challenged measure and the protection of its essential security interests. The panel emphasized that national-security invocations remain justiciable under international law and cannot be used as a blanket escape clause. In short, Russia – Transit makes clear that the WTO framework expects a good-faith, objectively reviewable nexus between the asserted security concern and the discriminatory treatment.

The WTO’s dispute settlement system provides the mechanism for challenging violations, but that enforcement mechanism has become largely toothless. Since 2017, the United States has blocked all appointments to the WTO Appellate Body, and by December 2019 the Body dropped below its three-member quorum needed to hear appeals. With no functioning Appellate Body, losing parties can now appeal panel reports “into the void,” leaving disputes in limbo and unenforceable. Throughout this time, the U.S. has blocked dozens of proposals to restore the Appellate Body. At recent WTO Dispute Settlement Body (DSB) meetings, U.S. representatives reiterated their position that WTO reforms are required before moving forward. The focus is particularly on national sovereignty and judicial overreach. A side-bar Multi-Party Interim Appeal Arbitration Arrangement is in operation among 57 WTO nations, including EU and China but not including the U.S.

The practical result is that if China (or another affected country) were to challenge USPTO practices as violating TRIPS national treatment obligations, the dispute could proceed to a WTO panel. But without a functioning Appellate Body, the United States could simply appeal any adverse panel ruling into the void, blocking the report from ever being adopted. I.e., there is no meaningful enforcement mechanism to compel U.S. compliance with TRIPS obligations, even if a panel were to find a clear violation.  And, although compliance with TRIPS and the Paris Convention are obligations that the U.S. has agreed to, they are not binding U.S. law. Thus, U.S. courts are free to ignore violation of those obligations when considering whether USPTO actions are legally justified. The result then is the common situation where international law obligations exist on paper but lack teeth in practice.

One potential implication is that the USPTO’s approach could invite reciprocal discrimination against U.S. patent holders in foreign jurisdictions, with other countries pointing to U.S. practice as justification for their own nationality-based restrictions on patent proceedings. The erosion of national treatment principles in patent administration may fragment the global innovation system into competing blocs with diminished cross-border protections — taking us somewhat back to the days of Cold War.